Determining Opportunity and Risk in Urban Retail Development

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Brookings Institute July 22, 2003
Determining Opportunity and Risk in Urban Retail
Development
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Community Center Management Development
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International Council of Shopping Centers
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Financial Vehicles Used by TRC

• Short-Term Acquisition/Construction Debt
• Long-Term Permanent Debt
• Mezzanine Debt
• Equity

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Risk of Urban Commercial Real Estate Investment

• Investors prefer top-tier markets
• More diverse and stable business

Example Cap Rates at Sale Rate of Rent Increases
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Step One
Evaluate the risk versus the expected return.
Educate the parties involved, including the
developer, retailer, equity investor, lender and
public entity.
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Steps to Financing Purchase, Redevelopment,
Expansion and Leasing

• Incentives for developer to invest
• Creating environment viable for retailers
• Attracting financing
• Real Estate Opportunity Funds - equity
• Commercial bank - construction loan
• Private investors - new equity
• Permanent lender
• Mezzanine lender

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Case Study
Skyland Shopping Center
New Development
Skyland
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Case Study
Skyland
Community Government Support for Development

• Possible partnership with CDC
• Local government to purchase and/or declare
  condemnation of property within designated site
• Section 108 financing from HUD or TIF financing
• Land owned by public sector approved for sale to
  developer
• Mayor (personally) promoting project to retailers
  
• Government financed Social Compact Study showing
  sales leakage

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Case Study
Skyland
Steps to Financing Development

• Incentive for developer to invest
• Creating environment viable for retailers
• Attracting team players
• Equity investor
• Construction lender
• Permanent lender

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Education
Research
ICSC Programs Educate and Promote Public-Private
Partnerships
School for Economic Development

• Attracting Development
• Smart Growth
• Modernizing Older Centers
• Site Planning
• Development Strategies

Alliance Program
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The key to encouraging investment in urban
commercial real estate is education. This must
occur on three levels, among developers, the
public sector and retailers.